Uncertainties persist into February

Fresh month begins with war jitters, shuttle disaster

By

SteveGelsi

NEW YORK (CBS.MW) -- The stock market will begin the second month of 2003 after a flurry of activity at the start of the year, but after all the speeches, earnings announcements and economic data, the uncertainties that have spooked the market remain.

And U.S. markets will certainly get another shock on Monday, when the shares of aerospace giants Boeing
BA, +0.43%
Lockheed Martin
LMT, -0.05%
and Alliant Techsystems
ATK, -0.07%
are likely to feel the impact of the space shuttle Columbia's disintegration during it landing descent on Saturday. See full story.

Boeing and Lockheed Martin are joint partners in United Space Alliance, known as USA, which serves as NASA's prime contractor for space shuttle operations. USA also manages approximately one-third of NASA's total shuttle budget, estimated at $3.2 billion for fiscal year 2003.

The shuttle disaster comes on the heels of a month of U.N. weapons inspectors in Iraq, troubles in North Korea and Venezuela, and saber-rattling by the U.S. and its allies, the fate of the coming war with Iraq still hangs in the balance. See Countdown to War page.

A flood of economic data indicated a possible upturn in the economy, but no blinding light of hope at the end of a long night.

One thing is different, however. Most stock market investors are just a little bit poorer than they were at the start of the year, at least if they bought long.

After a bullish start with investors snapping up stocks after 2002's sell-off, the mood turned ugly by the end of the month.

The Dow Jones Industrial Average
DJIA, +0.10%
ended the month down about 3.35 percent. The index finished the week down 78 points, or about 1 percent.

The Nasdaq
$COMPQ
shed about 1 percent in January. The tech-heavy index was down 22 points, or 1.6 percent, from its week-ago close of 1,342.

The S&P 500 lost about 2.8 percent in January. The index of blue chips lost 6 points, or 0.7 percent from its week-ago level of 861.

The Stock Trading Almanac maintains that since 1950, January has predicted the annual course of the S&P 500, with only four significant errors in 52 years.

In February, sharp January moves usually correct or consolidate. "Many technicians modify market prediction based on January's market."

Mark Hulbert of the Hulbert Financial Digest, a service of CBS.MarketWatch.com, said January may be a good forecaster, but more because momentum in any month is likely to continue into the future.

"We discovered not only that January is not unique as a bear catcher, but in addition, several other months do an even better job," he said.

In studying stock market trends and how each month forecast what was to come, Hulbert uncovered that February is actually the worst month for spotting either an up or down trend.

"All months but February are able, at the 90 percent confidence level or higher, to forecast higher or lower returns over the following 11 months," he said.

John Waterman, managing director of investments at Rittenhouse Financial, said he doubted whether the move in January would point either to another bear market year, or a return to bull markets.

"In the past couple of years all the rules have been broken," he said. "I wouldn't make a decision based on the January effect."

Economic data

Waterman said he's keeping a close eye on key data next week, including the January ISM figures on manufacturing due on Monday.

Other big numbers include fourth-quarter productivity as well as the latest round of employment and gross domestic product figures.

Earnings

While most of the S&P 500 have reported their latest quarterly earnings by now, plenty more are coming.

Consumer spending

Goldman Sachs economists continue to point to consumer spending as a key factor in the economy.

"Although debt levels have risen sharply in recent years, households do not appear to be so overstretched that they cannot satisfy their obligations," Goldman said in a note. "The flow variables that drive consumer spending are much less favorable. Companies are not hiring, wage trends are slowing, and the impulse to spending from the mortgage-refinancing boom is about to pass."

Richard Williams, a technical strategist with Summit Analytic Partners, said the market is "poised to decide whether the correction from Dec. 2 is done or is about to worsen perhaps dramatically."

His models continue to be bearish, but a decision on the war could provide a lift as "geopolitical risks are likely to be a big factor either way."

One of the big events will come on Wednesday, when the U.S. said it will present evidence of Iraqi duplicity on the weapons development front to the Security Council in a possible prelude to war.

Friday action

The Dow Jones Industrial Average rang up a triple-digit gain and the Nasdaq came off lows as the bulls staged a tug of war over economic data and earnings on Friday.

Stocks shifted into rally mode in afternoon action, in a reversal of the selling seen most of the week. Positive data on manufacturing and consumer spending provided some fuel.

The market began the month with gains, but sentiment soured in the last two weeks on war woes and cloudy corporate profit forecasts. At least the Dow has finished January above the 8,000 level.

The Dow Jones Industrial Average
DJIA, +0.10%
gained 108, or 1.4 percent, to close at 8,053. The index finished the week down 78 points, or about 1 percent.

The Nasdaq
$COMPQ
edged down 1.44 points, or 0.1 percent, to end Friday at 1,320. The tech-heavy index was down 22 points, or 1.6 percent, from its week-ago close of 1,342.

The S&P 500
SPX, +0.19%
rose 11 points, or 1.3 percent, to close at 855. The index of blue chips lost 6 points, or 0.7 percent from its week-ago level of 861.

Stocks recovered despite a lower opening on the heels of a fresh warning from Applied Materials
AMAT, -0.21%
Shares in the Silicon Valley tech firm lost 8 percent to $11.97 after it said it expects orders for the first quarter to come in below target. It's forecasting orders about 35 percent below its fourth-quarter level, versus an earlier target of 20 percent.

The company blamed the shortfall on economic weakness, geopolitical uncertainties, and customers deferring capital spending.

Stocks had opened lower, and then traded mixed for most of the morning.

"It's a tug of war between traders, a tug of war between earnings reports and data, and therefore the markets are see-sawing," said Sam Stovall, senior investment strategist for Standard & Poor's.

Manufacturing activity jumped in the Chicago region in January, according to a purchasing-manager survey released Friday. The Chicago purchasing managers index rose to 56 percent from 53.7 percent in December, beating the consensus estimate of 52.7 percent. See full story.

U.S. personal spending saw its biggest boost in five months in December, with incomes rising by the most since June, according to fresh government data on Friday. See full story.

Personal income was up 0.4 percent, the Commerce Department said. The number was twice as high as expected. Spending increased even more with a jump of 0.9 percent, the most since a 1.1 percent rise last July.

Meanwhile, consumers are growing more pessimistic about their expectations for the economy, but are more upbeat about current conditions, according to researchers at the University of Michigan. See full story.

The parade of earnings reports continued Friday, with Dow component Honeywell indicating it would meet 2003 profit targets.

The industrial conglomerate
HON, -0.03%
reported a net loss of $1.47 billion, or $1.78 a share, including asbestos-related charges. Excluding nonrecurring items, earnings were 50 cents a share, down from 55 cents in the year-earlier period. Revenue was flat at $5.86 billion. Analysts surveyed by Multex had been expecting earnings of 50 cents a share and revenue of $5.58 billion, on average. Shares rose 4 percent to $24.44.

Disney's
DIS, +0.54%
quarterly results came in at the upper end of Wall Street targets on an unexpected boost from last-minute theme park travel. The company declined to provide an outlook on second-quarter results, but reiterated earlier projections that profits would rise 25 percent to 35 percent in both 2003 and 2004. The stock rallied 7 percent to $17.50. See full story.

Dow component McDonald's
MCD, +0.06%
fell after Fitch lowered its debt rating to "A-" from "A." The stock dropped 1.5 percent to $14.24. See full story.

Dell Computer
DELL
shares dipped 1.3 percent to $23.86 after Lehman Bros. said it believes the computer maker will meet fiscal fourth-quarter expectations, but thinks first-quarter expectations will be muted due to weak U.S. demand, pricing pressures and ongoing geopolitical risks.

Boeing
BA, +0.43%
stock added 3 percent to $31.62 after the Dow component won a 100-jet order from Europe's Ryanair. See full story.

Charles Biderman, president of Trim Tabs, said $1.7 billion flowed into equities in the week ending Jan. 29.

Equity funds that invest primarily in US stocks had inflows of $700 million, compared with outflows of $2 billion the prior week.

International equity funds had inflows of $1.1 billion, compared with outflows of $1.8 billion the prior week.

Bond funds had inflows of $2 billion, compared with inflows of $1.8 billion the prior week.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.